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Foreign Ownership of U.S. Treasury Securities: What the Data Show and Do Not Show

June 3, 1998

Note To Editors

NEW YORK—Although considerable information is released on foreign holdings of U.S. Treasury securities, it is not possible to determine from the published data exactly which foreigners own Treasury debt and how much of this debt is in foreign hands, according to Dorothy Meadow Sobol, an assistant vice president at the Federal Reserve Bank of New York.

In Foreign Ownership of U.S. Treasury Securities: What the Data Show and Do Not Show, the latest article in the series Current Issues in Economics and Finance, Ms. Sobol contends that the inability to determine foreign ownership with complete certainty stems mainly from two factors: the Treasury Department's obligation to respect the confidentiality of individual respondents and the design of the reporting guidelines themselves.

As Ms. Sobol explains, each month the Treasury asks banks, other depository institutions, and brokers and dealers to report short-term Treasury securities held in custody for foreigners as well as foreign purchases and sales of long-term Treasury securities.

"In soliciting data," Ms. Sobol notes, "the Treasury Department assures respondents that the information they provide will be held in confidence." This commitment to protect the confidentiality of individual respondents means that published data are presented only in aggregate form, leaving the amounts reported by individual respondents undisclosed.

"Further, although it is possible to determine whether foreign official institutions as a group are buying or selling long-term Treasury securities from month to month," Ms. Sobol writes, "the Treasury data do not reveal the actions of any individual country's central bank at any given time nor indicate whether that central bank is buying or selling Treasury bills, notes, or bonds." Consequently, "any press or other reports stating that a specific country's central bank is unloading Treasury securities are based on purely speculative or anecdotal evidence."

The determination of foreign ownership is also made difficult by the reporting guidelines, which direct respondents to assign nationality on the basis of location. In cases in which a U.S. institution purchases long-term Treasury securities from a foreign institution, it is the location of the foreign institution that determines the reported nationality of the foreign holder, not the location of the person or firm on whose behalf the foreign institution may be acting.

"If a U.S. bank buys a long-term Treasury security from a Japanese resident's account with Merrill Lynch in London, the transaction will be reported as a sale by a U.K. resident and not a Japanese resident," Ms. Sobol explains.

Ms. Sobol also indicates that somewhat better information on the ultimate owners of long-term Treasury securities is available at the time of the Treasury Department's benchmark surveys of foreign holdings. Nevertheless, because the surveys are conducted only at five-year intervals and their findings are published with long lags, the information they contain loses relevance over time.

A final limitation of the data is their inability to capture the activity in Treasury securities undertaken by foreign institutions with each other. "The Treasury's reporting system is designed to record only those capital movements that cross U.S. borders," Ms. Sobol notes. As a result, transactions in Treasury securities between banks in Tokyo and London, for example, will not be included in the Treasury data.